In England, the Countryside Productivity Small Grants Scheme (CPSG) round 2 claim deadline has been extended to mid-night on 31st July 2020. Due to COVID-19 issues, suppliers are finding it difficult to deliver equipment by the original 31st May deadline.
The entitlement transfer deadline in Wales has been extended from 30th April until midnight on 15th May 2020 for use on 2020 SAF applications. This comes after the announcement that the SAF deadline will now be 15th June 2020 ( see earlier article).
The Welsh Government has extended the Single Application Form (SAF) deadline by one month to 15th June. It has also announced the Crop Diversification requirements (3 crop rule) will be removed for BPS 2020. The Welsh Government says the announcements are made in recognition of the ‘challenges facing the sector as a result of the Coronavirus and the recent flooding’.
In addition, to help with cashflow, £5.5m has been allocated to the BPS and Glastir 2019 Support Scheme which has re-opened from the beginning of April to support those farmers who have not yet received their 2019 BPS and/or Glastir payments.
Wise are those who know they can’t see into the future.
With the Pound at 35-year lows against the Dollar, the price of commodities will rise sharply in Sterling terms. When the local currency shrinks (effectively what a currency weakening is), you get more Pounds per Dollar or Euros. Thus, you also get more Pounds per good traded in Dollars or Euros – i.e. price rises. The prices of commodities move continuously throughout the day. Other farm inputs such as labour, machinery and rent for examples, are repriced annually or even less frequently, This means the rise in prices is slower and staged. This leads to a short term gain in agriculture.
It can be seen that a weak currency is inflationary to an economy. Likewise, when a central bank such as the Bank of England lower base rates, it releases more liquidity into the market (as less is spent financing debt), encouraging people to spend more on goods. Thus, this is also inflationary. The Bank of England has also announced £200 billion of Quantitative Easing (QE). This is £75bn more than was expected. QE is when the bank releases liquidity into the capital markets by purchasing (usually) bonds. Again, this liquidity provides support for the capital (largely stock) markets. One side effect of this is inflation. All this, coupled with the recent surge in sales of so many living costs, could fuel inflation.
Deflationary factors will be the reduction of spending of other goods such as air flights, fuel, new cars and so on, and the potentially large rise in under-utilisation of the UK workforce. It is not clear how the furlough policy might offset this factor.
As we are in a period of uncharted territory, it is difficult to know if the Government and Bank of England have done enough or too much. Inflation might be considerable if it is not managed properly.
As with everything else, the Brexit negotiations have been affected by the Covid-19 outbreak. The EU Commission’s Chief Negotiator Michel Barnier recently tested positive for the virus. However, there have been some developments over the past month which merit comment.
Firstly, both sides have been focusing on issuing their draft texts for a potential Free-Trade Agreement (FTA) between the UK and the EU-27. The UK tabled its draft text on 18th March ‘in confidence’ as part of the negotiating process. The EU also shared its draft with the UK on the same date, but has recently published its draft text (440 pages, accessible via: https://ec.europa.eu/info/sites/info/files/200318-draft-agreement-gen.pdf).
Unsurprisingly, the EU is pushing for the UK to have minimal divergence from EU State Aid rules. The UK would also have to align closely with EU environmental, labour and quality standards (including sanitary and phytosanitary standards for food). A ‘Specialised Committee’ on the Level Playing Field would also be set-up to oversee arrangements. This would encompass 16 sub-committees to address specific issues. If arbitration was required on the interpretation of EU law, then it would have to defer to the European Court of Justice for a ruling, something which will be hotly disputed by the UK.
From an agricultural perspective, the FTA draft texts would have minimal impact on future support as it is acknowledged that the UK would be free to pursue its own support system, as long as WTO limits were respected.
Both sides remain intent on agreeing a comprehensive future trading partnership which permits tariff-free and quota-free trade between the UK and the EU. However, non-tariff barrier costs would inevitably increase, particularly in agri-food as sanitary and phytosanitary checks, customs checks and rules of origin would apply.
Although both sides have committed to studying the other party’s text in detail, large portions of the EU draft will be unacceptable to the UK, particularly in terms of the role of the European Court of Justice. That said, these draft texts are very much the starting point in the trade negotiations and it is fairly standard at this point to have significant differences of opinion between both parties.
Looking ahead, whilst the UK’ had intended not to extend the Transition Period beyond December, with the Covid-19 situation, it is becoming increasingly likely that the negotiations will need to be extended. Privately, some UK Ministers are already acknowledging this. However, dealing with the pandemic is rightly at the forefront of both parties’ minds at present.
As the Covid 19 outbreak continues to worsen, the Government’s financial response has moved to levels not seen in peacetime. A third aid package was announced on the 20th March, to go along with the measures outlined in the Budget and those of the 17th March.
The main points of the package, announced on the 20th March, are as follows;
Further measures are forecast. We will keep you updated on any developments.
The Crop Diversification rule under Greening is to be removed for the 2020 year in England. This was announced by Defra on the 20th March and follows intensive lobbying by the farming industry following the very wet autumn and spring. The ‘Three-Crop Rule’ was written into UK law when EU regulations were imported wholesale. Parliament will now be asked to approve a blanket derogation. Farmers will be informed when this becomes law.
The Bank of England announced a further cut in UK Base Rates to 0.1% on the 19th March. This is the lowest rate in the Bank’s 325 year existence.
The spread of the Covid 19 coronavirus has seen the world stop working as we understand it. The impact on the supermarkets and food availability for consumers has been clear. Here are our thoughts on the crisis on the wider food and farming industry. They can be divided into short, medium and long-term implications.
The Consumer: Supermarket shelf stripping has been a consequence of both panic buying and preparing to feed families and elderly for prolonged periods without the use of food service, restaurants and coffee shops. Consequently, the demand for most goods including milling wheat for bread and biscuits has rocketed; the broiler kill rate has gone up sharply and the demand for other meats has also increased hugely. The emergency is to replace the empty shelves with goods for the consumer.
Total food requirements should not change overall. So presumably demand will slow at some point soon when people’s stores and freezers are full. However, eating habits in the home differ from the restaurant or food service. With no eating out, evidence suggests consumption of expensive cuts of beef and lamb and ‘top-end’ cheeses such as Stilton will probably fall after a while. We would expect more chicken and lower priced pig and beef meat for burgers and sausage style foods. Perhaps people will eat more healthily, with more vegetables rather than a typical restaurant pizza or burger option, so demand may shift. Beer consumption is falling around the world, people drink less in the home and less alone.
We are also finding several farmers, notably some dairy farmers are struggling to sell their farm goods at the normal prices because they supply the food chain that ends up in the food-service or catering outlets. Suppliers of high-end cheese manufacturers for example are not being paid in full, as most quality cheeses are consumed in restaurants. Other suppliers of places like burger bars and fast food chains are also seeing their conventional supply tailing off. It is clearly taking a while for these supply lines to re-route to where the food is desperately needed.
Prices: Commodity prices move when demand and supply are not aligned. Expect some volatility. Prices for all the goods mentioned above where demand has risen would be expected to go up (such as wheat up £10 per tonne). Overall trends may take some time to establish according to how the supply chain manages the flow of goods and how the consumer changes their habits.
The Farmer: Farmers are relatively good ‘self-isolators’ already. We would expect many to be able to ‘carry on farming’ with most farms operating as usual as long as supplies get through. However, staff absences could lead to livestock welfare issues, diversified business dependant on general public foot fall could be hard hit, and estates renting out cottages may be affected as tenants can stop paying rent without the threat of eviction. The only support farmers will get is loans or Statutory Sick Pay refunds as the Government grants announced by the Chancellor, Rishi Sunak, are based on Business Rates at present and (undiversified) farmers don’t pay rates.
Farm Workers: Access to casual migrant labour is going to become a big issue if travel bans remain in place over the summer. The Farmers Weekly reports that appeals have started to go out for British workers to work on farms. This is easier said than done if everybody is staying indoors.
Supply Chain: This is where we see problems of maintaining physical turnover because of lower staffing. Abattoirs, packing sheds, mills and other points where bulk commodity starts its transition into branded food products is largely labour intensive and cannot be done at home. They require lines of people working closely together in sheds. Many people will not be happy to work in these conditions. Whether work can be taken outdoors, or spread out will depend on each facility, but it is likely that turnover may fall sharply in some locations.
The flow of cash has also already started to slow, with many firms hoarding cash and not paying each other. Expenditures that are not short-term-critical are also being postponed. Profitable businesses unable to turn their profits into cash will struggle in coming weeks and months. Some supermarkets have committed to pay small manufacturers more quickly than usual.
Retailers are already shifting resources in their outlets towards the supermarket floor and fulfilling online demand. Whether this distracts them from purchasing and supply roles will depend on how well they are managed.
Trade: Travel restrictions do not apply to medical staff, medicines or, crucially, goods. However, there are inevitably going to be plenty of supply-chain glitches, people going into self-isolation, shipping containers not where they are supposed to be etc. There is no news yet on such matters.
Trade Negotiations: Michelle Barnier, the EU’s Chief Brexit negotiator, has got Coronavirus. The UK-EU trade talks had already been put on hold in any event. This has led to speculation that the Brexit Transition Period, in which the trade talks should have been completed, will be extended. However the UK Government is currently sticking to the line that the Transition will end on the 31st December. The deadline for triggering any extension is 31 July. We await announcements.
Policy: The severe shortages of food availability in the shops, and the images of desperate panic-buying shoppers might encourage Defra, and Government more widely, to rethink its policies on food security. Currently, there is peace of mind in Defra that 80% of our imports have been from ‘friendly neighbours’ in the EU. Might Defra consider that more home-produced goods could be a strategic benefit?
Industries will also look towards Government to support the rebuilding of the UK economy when this calms down. The cost will be immense. Whether it will mean major infrastructure projects like HS2 will be postponed remains to be seen.
Supply Chains: Following the horsemeat scandal of 2013, some food supply chains went to great effort to shorten their linkages, source from fewer and more local outlets. Perhaps this will do the same. ‘Local food’ almost became a brand in its own at that point, certainly becoming more powerful than simple patriotism when swaying shoppers how to buy.
Globalisation: The expansion of global trade routes since 2000 has been considerable, and given consumers more choice, lower inflation, cheap goods and created cost savings. However, events like Covid -19 could lead to new procurement policies, with maximum percentages from certain countries or suppliers, for example. Will this lead to a refocus on nationalisation, albeit for a short while? It might fit with some of the Brexit mantras we have been hearing.
Businesses Generally: Coronavirus will bankrupt more than it kills. Several high-profile companies have already been floored, presumably not to recover. If businesses have to take out (Government backed) loans to continue in business, these still need to be paid back at some point. This may lead to lower investment in the future and possibly reduced future profitability. Some firms will use the loans to provide liquidity as their profits are tied up in non-cash forms such as debtors or valuations.
The Economy: Whilst customers and consumers stay in their houses, the economy is in freefall. The economic effects of the pandemic look set to outstrip the recession of 2007 to 2009, even though the UK economy a month ago was in a much stronger position than it was back then. The concern of the markets is shown in the collapse of the Pound (reaching its lowest point against the dollar for 35 years). This actually helps farming, as it makes goods imported into the UK cost more in Sterling terms. Commodity prices move as a response to currency shifts immediately, whereas other goods such as agricultural inputs, wages and rent change very slowly. Thus, the rise in price will favour the farming community. But it will not take long to for a weak Pound to fuel inflation and the new Governor of the Bank of England, Andrew Bailey, will have to act quick to stop it when necessary. Both the Governor of the Bank of England and the Chancellor have both been in their posts for less than 5 weeks!
Scottish Farmers and crofters will be able to obtain funds to help tackle climate change on their holdings. Under the Agricultural Transformation Programme £40 is being made available through a combination of grants and loans to carry out actions which will reduce greenhouse gas emissions and support sustainable farming and land use. The details of the scheme are still being developed, but it is expected to include support for:
The programme is expected to be available later in the year. NFU Scotland has shown its support for this initiative, but says to really deliver on ‘environmental and climate goals’ more funds are required and that farmers and crofters must be ‘incentivised’ to take up measures focusing on soils, input costs and emission reduction.
